Why the World Bank denounces CBN policies
We are in an era of economic uncertainties that have characterized the post-COVID-19 pandemic. The global economy is currently in reverse due to inflation, depreciating stocks and rising public and private debt in both developed and developing countries.
The Russian-Ukrainian war, which depicts persistent power in the use of strategic military weapons by the warring parties, unfortunately causes breaks and disruptions in production chains, leading to bumps in the disarticulation of goods and services. The war is also confusing the fragile balance between supply and demand in the face of soaring food and energy prices. Unfortunately, we are all facing the alarm bells of impending food shortages and hunger.
Instructively, both developed and developing countries, through fiscal and monetary policies, are doing all they can to contain the impending danger.
In this regard, central banks around the world are racing for tightening measures to deal with the scruples that shroud the global economy. This is happening in an orchestrated fashion, by monetary authorities raising interest rates in an effort to rein in soaring inflation, which, to their dismay, continues unabated on a monthly basis.
Nigeria’s monetary authority, the Central Bank of Nigeria (CBN), is no slouch in this economic fight – the fight against inflation and other myriad challenges. However, a recent World Bank report on the CBN’s handling of the economy has challenged the monetary policies of the apex banks and sounded the alarm about the enormous risk of further destabilizing anticipated economic growth.
The Washington-based global lender revealed this in its “Nigeria Development Update (June 2022): The Continuing Urgency of Unusual Business.” This neoliberal institution has been very blunt in condemning the CBN’s policies on multiple exchange rates, trade restrictions and public deficit financing as the reasons for the poor business environment in the country.
The World Bank said the CBN’s measures are “business as usual that hampers prospects for economic growth and job creation.”
Before and after the COVID-19 pandemic, the Nigerian apex bank, as part of a shift in monetary policy measures to grow the economy, adopted the “heterodox monetary strategy”. A heterodox monetary stance in the thinking of apex bank leaders would ensure firmness to correct the valuation of the naira under a transparent exchange rate regime, improve export earnings as well as price stability and create jobs.
In what appears more detrimental to the CBN’s efforts, the World Bank said that “the Central Bank of Nigeria’s development finance intervention fuels short-term inflation and weakens the apex bank’s ability to control the ‘inflation”.
From the above, we can dissect the concerns of the World Bank. The Nigerian economy is struggling and the naira is under the weight of foreign currencies. The growth rate decreased by -1.8% in 2020, increased by 3.4% in 2021 and is expected to maintain the pace at 3.11% in the first quarter of 2022. The economy has suffered a high inflation rate of 15.9% in March 2022 and a high unemployment rate of 33.3%. % Q1 2022.
The naira depreciated from N360/$1 in 2019 to N580/$1 in 2022, with the parallel market exchange rate falling by 61%. The national reserve fell to $39 billion in April 2022. Inflation rose by 39.5%. In the same vein, external and domestic debt stocks continue to fluctuate between $38 billion and $45 billion from 2019 to date.
The bank said: “Notably, in 2020 and 2021, when oil prices were much lower, the government lost an opportunity to address one of the main sources of fiscal vulnerability by choosing to maintain the subsidy for premium automotive gasoline, more commonly referred to as gasoline – a one-time, opaque, costly, unsustainable, harmful and unfair subsidy.
Nevertheless, the global lender recognizes the importance of the CBN’s intervention “support programs for micro, small and medium enterprises are a priority to protect viable and vulnerable MSMEs against growing uncertainty”
But what exactly is the rationale behind the World Bank’s criticism of CBN policies and the Nigerian state’s failure to withdraw subsidies. Although the World Bank has been the guardian of orthodox neoliberal economic practices since the 1970s, its various prescriptions on global economies, among others, inform their lending and financial initiatives.
Nigeria’s experience with the World Bank dates back to the late 1980s, when it diagnosed the Nigerian economy through neoliberal lenses. So, the World Bank poking holes in the CBN’s heterodox policy at this point is unsurprising, given the apex bank’s refusal to devalue the naira and its opposition to the removal of subsidies.
Nevertheless, the Nigerian economy is not appreciating, and this is due to structural deficits for many years.
So what could be the solution, because the World Bank report said nothing new; we are witnessing the pathetic economic reality. As things stand, the CBN must maintain its objective of supporting the real sector for economic growth.
The CBN must not lose sight of the fight against micro and macroeconomic vulnerabilities pushing millions of Nigerians into extreme poverty.
The late Sir Henry Boyo’s objective suggestion of saving the naira through “the liberalization of the foreign exchange market and the introduction of dollar certificates as payment to statutory beneficiaries” is apt.
According to him, this would critically help not only to remove the pressure on the naira, but also to stabilize and accumulate foreign currency earnings from crude oil.
Olamilekan, political economist and development researcher, writes via [email protected]; 08107407870, 08073814436